HotMovies.com Coming on Strong

Richard Cohen admits he missed the first Internet gold rush. He was too busy building the largest AudioText company in the country to commit time or money to the World Wide Web.

But, not this time.

“I was two years too late,” Cohen said. “The other competitor … started before us, and they’re bigger than us. But by late (2006) they won’t be. There’s no way. Whatever it takes, we’ll be #1.”

For Cohen, “whatever it takes” means investing heavily in state-of-the-art computers, networking equipment and proprietary software to operate HotMovies.com, an adult pay-as-you-go Website that allows users to “get in, get off and get out.” This non-membership business model, Cohen believes, is groundbreaking and, along with “download to own,” will change the way creators of home entertainment do business.

“Digital delivery is the future for all kinds of content, both adult and mainstream,” says Cohen, who also co-owns general release sites VOD.com (VideoOnDemand.com) and Celebrities.com. “Most people do not want to own (an adult) DVD or watch all of it. They want to watch what they want, when they want, and go from studio to studio, movie to movie.”

Cohen, an entrepreneur who has owned jewelry, check cashing and video stores in the Greater Philadelphia area, has operated traditional adult membership sites and found them to be “not a good value to the consumer.”

“We took one of our better sites, which is $20 a month with monthly billing, and added a one-month plan for $24.95, where customers just pay one time and that’s it,” he says. “The one month plan which is $5 more — 25 percent more — outsells the cheaper plan that uses recurring billing 4-to-1. That just shows you that people don’t want to be billed every month. They want to go to a site, look at the content, and that’s it.”

As co-owner of Philadelphia-based National A-1, the largest provider of Audiotext adult services in the country, Cohen recognized that the pay-per-the-minute technology used for voice personals, virtual chat and live one-on-one phone conversations could be successfully adapted to the Internet.

“There’s one thing we have that no one else has: pay as you go,” Cohen says of HotMovies.com. “All the other sites bill in advance. We’re the only one that can bill as you go. With AudioText technology, basically you pay after the call. We don’t know how long you’re going to talk. You call one of our live operators — it could be two minutes; it could be 30 minutes — and we bill you after the call.”

The pay-as-you-go plan at HotMovies.com costs 15 cents per minute, but Cohen says his repeat customers take advantage of lower prices by buying blocks of time in advance.

“The most popular plan is 200 minutes for $19.95,” says Cohen. “The second most popular plan, which is pretty close, is the $49.95 — 620 minutes — which breaks down to eight cents per minute. Most of our regular users buy the $50 package.”

“Think about it,” Cohen says. “You go to the site for half an hour — let’s say the average price is 10 cents per minute — it costs you three bucks. That’s nothing. You can’t even get a Starbucks coffee for that.”

What you do get at HotMovies.com is a slick, professional surfing and viewing experience, featuring 32,000 movies from more than 900 studios worldwide. During an interview at his Center City Philadelphia offices, Cohen enthusiastically takes a visitor through a hands-on tour of HotMovies.com. Deftly clicking and scrolling through the efficiently laid-out 3-year-old site, Cohen proudly demonstrates the simplicity of interactively searching, watching and writing reviews for what you see. Users can also turn-off unwanted genres and view a history of what’s been seen.

“We have three SANs (storage area networks) and spent over $1M this year on equipment,” Cohen says, explaining he’ll spare no expense to create a high-quality experience that will keep customers coming back. “We can’t afford downtime.”

“We’re encoding in 1MB now,” Cohen says, displaying a scene from a movie in crystal clear full-screen view. “You have three choices: you have dial up, you have high-speed, and you have 1MB. So far we have 1,000 movies in 1MB. Every new movie, just about, is in this higher quality.”

“It’s very expense to encode (in 1MB),” Cohen says, adding HotMovies.com does approximately 100 movies per day. “But we want to have every movie there is (in 1MB), at any cost. We want the biggest library. The library that has the most books is the most popular.”

“It’s amazing,” he says, comparing his site’s playback quality to an actual DVD, “and I’m not just saying that because it’s my site. After seeing this, how could you join a membership site? There’d be no reason, unless you want to just look at pictures.”

Cohen says his company also licenses their software, allowing companies complete control of their own customers and billing.

For the movies in his library that are less viewed, Cohen’s system will automatically identify the slow-sellers and put them on special.

“We run a query every month to see what movies aren’t being watched,” Cohen says. “Or let’s say we have some studios that people aren’t going to because they never even heard of them. So we put them (on special) and make it five cents per minute just to get people to see what they do.”

“It all comes down to, if you make something good, you’re going to do business,” he adds. “You could be … nobody, but if you make a good film you’re going to make money. You might make more than somebody who advertises, or buys three pages in AVN. It’s the content that matters in the end.”

Content is critical, especially for an audience that typically views movie clips for 5-10 minutes. Cohen says it’s this desire by customers to see short snippets, rather than full-length videos, that drives his current business model.

“That’s the average, 5-10 minutes,” Cohen says. “People do not want to buy an entire DVD. They do because they are forced to. It’s like when you rent a Pay-Per-View movie from Comcast for $12, you only rent it because you have to. If you’re in a hotel room and see three movies there, if you could only watch 10 minutes of this and 10 minutes of that, you would, but you can’t. They do well, because that’s all they offer.”

But, Cohen says, for studios that want to sell movies there’s a bigger, long-term picture. He believes watching movies through your computer — whether it’s the computer itself or a TV connected to a computer — is the next frontier for adult.

“For every person that buys a DVD, there’s probably 1,000 who can’t,” he says. “The studios only go after, for the most part, the DVD market. But think about how many millions of people can’t buy a DVD because they can’t have it shipped to their house, or they can’t have it on their shelf or in their drawer, and the studios really don’t go after those people. Even if you knew nothing about the business, you would have to assume that there are more people who want to watch porn than would buy DVDs.”

“Now let’s say you want to buy a Legend DVD; you just download it to your hard drive. You don’t have to have it shipped to you,” he continues. “(The studios) don’t do that yet — it’s called “Download to Own,” and we’re offering it (as of November 2005) — but most studios are not interested because it just so different than what they’re accustomed to. But digital delivery is coming. You’re not going to have to buy a DVD, and this goes for non-adult, too. If you want to watch Mary Poppins with your kids, you’ll still pay for it, it might be 20 bucks, but you’re going to store it on your hard drive. For the studios, it would be an entire change in the way they do business.”

“We sent out a letter with our last checks about Download to Own, and we got about 25 studios who are interested, because some of them see the future, and they understand that with this technology you’re not going to have to buy a product,” he says. “They’re smaller studios, but they’re interested in selling their content right on the Net. Right now we sell downloads (on HotMovies.com), which no one buys, but it’s for a limited period (7 days, 14 days, 30 days). Why would you want to download a whole movie for only a month?”

“Once Download to Own becomes popular, and the studios embrace it, there will be people who do want to own the entire movie, but don’t want to have the DVD in their house.”

Cohen said under the Download to Own scenario studios would still receive reimbursement, like with the limited-time downloads currently being used, but adds that consumers should see a decline in the cost for a title.

“(The studios) will have to set the price,” he says. “They’ll say they want X amount for the movie, which should be substantially less than what they sell it for now because there’s no packaging, no shipping, they don’t have to do anything. And the people can own it forever on their hard drive.”

“As for the piracy issue, we have DRM — Digital Rights Management — and that stops people from copying the streams,” Cohen adds. “Now sure, one out of a ten thousand people could potentially encrypt it. But what’s to stop you from taking a DVD and making a copy? Stealing our streams is much, much more difficult.”

Cohen believes strongly in his business models and sends company representatives all over the world to adult trade shows to spread his message. He, himself, traveled to the 9th Venus International Trade Fair in Berlin, Germany, last October to make sure people knew about HotMovies.com.

“On the front of the building we bought the biggest sign, because that’s what all the photographers are going to see; that’s what I believe in,” Cohen says.

Still, it’s a matter of getting the studios to believe. Cohen, an avid Texas Hold’em player, who has sat across the table from some of the biggest names in the poker world, considers it a sure bet the studios will eventually come on board.

"Studios need to start thinking of us as their partner and not their competitor,” Cohen says. “Sure they have to pay us a fee, but we can offer much more value and time savings than if they attempted it themselves.”